Question

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing...

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $385,000 per quarter. For financial reporting purposes, the company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:

Product Selling Price Quarterly
Output
A $ 27.00 per pound 14,400 pounds
B $ 21.00 per pound 22,400 pounds
C $ 33.00 per gallon 5,600 gallons

Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:

Product Additional
Processing Costs
Selling
Price
A $ 89,220 $ 32.80 per pound
B $ 129,170 $ 27.80 per pound
C $ 60,160 $ 41.80 per gallon

Required:

1. What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point?

2. Based on your analysis in requirement 1, which product or products should be sold at the split-off point and which product or products should be processed further?

Homework Answers

Answer #1

Incremental analysis :

Product A Product B Product C
Sale price after further processing 32.80 27.80 41.80
Sale price at split off point 27 21 33
Incremental sale price 5.80 6.80 8.80
Quantity 14400 22400 5600
Incremental sale revenue 83520 152320 49280
Incremental cost -89220 -129170 -60160
Incremental profit (loss) -5700 23150 -10880

2) Analysis :

Product A Product B Product C
Sale at split off poing Yes No Yes
Sale after further processing No Yes No
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